Iowa State economists assess the state of the Iowa economy and its 2009
future

AMES, Iowa -- President Obama's inaugural address emphasized the severity of
the nation's economic crisis. And while Iowa State University economists
Peter Orazem and Liesl Eathington agree that the crisis hasn't hit bottom
yet, they say that Iowa continues to weather the storm better than the rest
of the nation.

A University Professor of economics, Orazem reports that Iowa doesn't suffer
as much during the tough times because of its more modest growth during
economic prosperity.

"If you look at it sector by sector, in the sectors that have expanded the
most rapidly over the last several years -- such as retail, or real estate
-- we expanded, but we didn't expand as much (as other states)," Orazem
said. "And if you look at the sectors that fell the most nationally -- such
as manufacturing -- we fell, but not as much. And so to some extent, we tend
to have a much more moderated business cycle than the national cycle, and I
think some of that is happening.

"So while we've lost 5,000 jobs in manufacturing over the last year, that's
much lower than the proportional loss of manufacturing jobs nationally," he
said. "Our banking system also did not get heavily involved in real estate.
Some of that was dumb luck because we didn't have a boom. And so, we didn't
get involved in the same sort of problems."

The director of ISU's Regional Capacity Analysis Program, Eathington says
when she looks at the levels of different indicators -- such as the level of
unemployment or the rate of foreclosures -- compared to national averages,
Iowa doesn't look as bad as other parts of the nation.

As an example of Iowa's mitigated loss, the economists cite that while the
national unemployment average has risen to 7.2 percent -- its highest level
in almost 16 years -- Iowa's unemployment is at 4.3 percent.

"One of the reasons is we tend to not have a lot of excess labor hanging
around anyway," Eathington said. "We tend to export our labor. So there
wasn't really a lot of excess out there."

That's not to say that the state of the Iowa economy is strong. As an
example, Gov. Culver has already ordered a 1.5 percent across-the-board
state budget cut to help offset an estimated $779 million shortfall in the
budget for the fiscal year that starts July 1.

Eathington serves on the Governor's Council of Economic Advisors and reports
that economists on the council have grown increasingly concerned.

"At the last meeting in December, we were asked about the outlook for the
state's economy. At that time, it was about half and half," Eathington said.
"Half of the people thought it was going to get worse than what we were
seeing. And half of the people thought it was a lot of 'The sky is falling'
talk.

"Now, I'm hearing more people who are starting to notice (the bad economic
outlook) and feel things directly," she said. "So that's why I'm pessimistic
that we haven't reached the bottom yet."

Eathington's been looking at how relative changes in economic indicators
compare with the changes in previous years.

"Over the long term, what those types of comparisons are suggesting is that
on just about every front -- in terms of employment and manufacturing
activity and national consumer sentiment -- we're declining more than during
either of the previous two recessions," she said. "We're looking more like
the 1980s (a serious recessionary period). So it's scary."

But Orazem -- who participated in The Des Moines Business Record's 2009
economic forecast panel earlier this month -- is a bit more optimistic.

"Peak to trough, the economy was doing quite well and was probably
overheated because of cheap access to money," Orazem said. "And so at least
so far, I don't think that Iowa itself is doing that badly. Certainly I
would agree that on the national front, the recession looks like it's going
to be deeper than say 2001 or 1992. But those were relatively mild
recessions."

He calls some recent comparisons by Iowa lawmakers of the current economic
crisis to the Great Depression as being a bit out of line.

"We've run right past 1982, and I don't think we're going to be that bad
either," he said. "That was a really bad recession for Iowa because it was
heavily influenced by a very bad agricultural market, which was a much
bigger fraction of our business than other places. Some of the other
industries were also going through problems at the time -- like meatpacking
and tires -- a heavier share of the manufacturing base at that time. But I
think some of this is more politics than it is economics."

Both economists expect the new Iowa Workforce Development statewide
employment report to show escalating unemployment across the state, a
reflection of the economy's continuing downward trend.

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Liesl Eathington

Quick look

Iowa State economists Peter Orazem and Liesl Eathington agree that the
country's economic crisis hasn't hit bottom yet, but they say that Iowa continues to
weather the economic storm better than the rest of the nation.

Quote

"Peak to trough, the economy was doing quite well and was probably
overheated because of cheap access to money. And so at least
so far, I don't think that Iowa itself is doing that badly. Certainly I
would agree that on the national front, the recession looks like it's going
to be deeper than say 2001 or 1992. But those were relatively mild
recessions."